5 Terrifying Things about the Sequester

5 Terrifying Things about the Sequester. Just my top two, the rest are at the link.

1. The sequester will hurt job-growth

As we pointed out during the debates raging in the run-up to the “fiscal cliff," the sequester was the second-most damaging component of the austerity bundle set to take effect on January 1, 2013. The worst component was the non-renewal of the payroll tax cut, which is already dragging substantially on the economy. All told, if the sequester kicks in the economy will likely end the year with roughly 500-600,000 fewer jobs than if it were repealed. These are jobs the economy desperately needs. To be clear, the sequester alone won’t drive the U.S. economy back into outright recession, but it surely will make the agonizingly slow recovery that much slower. Further, it’s worth noting that even a full repeal of it with no offset will still result in an economy growing much too slowly to quickly return to full-employment. In a nutshell, arguments over the sequester are roughly about whether we’d like to be $900 billion or a full $1 trillion below economic potential in the coming year.

....5. Entitlement are commitment devices. That’s scary.

Given that much of the negotiation over the sequester is how to “pay for” its repeal with other spending cuts, it should be noted that legislated changes to Social Security, Medicare, Medicaid and the ACA do not need annual appropriations, and hence are likely to be much longer-lasting than any agreed-to discretionary cuts. Replacing the sequester with cuts to these valued programs would be a disaster. We have shown, for example, that Social Security, Medicare and Medicaid combined contributed ten times as much to income growth for middle-income households over the last generation than growth in hourly wages. These programs are, by far, the part of the U.S. economy that still manages to deliver some goods to low- and moderate-income households. Gutting them in the name of securing a better economic future is perverse indeed. Obviously, pure efficiencies that save these programs money—tougher drug bargaining for Medicare, or reforms to provider reimbursement that squeeze out economic rents and improve quality—are welcome. But simple cuts to these programs that shift costs onto households as a way to pay for the sequester is close to a worst-case outcome.